Self-Employed Forecaster Tops Big Banks With U.S. Housing Call

The survey covered 10 quarters starting in January 2006 and ending in June '08. During that time, homebuilding plunged, subprime-mortgage defaults infected banks and the Fed cut rates at the fastest pace in two decades.

Oct. 23 (Bloomberg) -- Joel Naroff was visiting Arizona in September 2005 when he had an epiphany. Phoenix-area realtors were looking for home prices in the metropolitan area to surge about 40 percent for a second year.

``That was an indication to me that the market had gotten out of control,'' he recalls.

Naroff's concern about a housing bubble paid off three years later: He's the top forecaster of the U.S. economy in a period that included the start of the global credit crisis, according to data compiled by Bloomberg. Naroff, 59, was the most accurate for his combined predictions for gross domestic product, unemployment, the consumer price index and the Federal Reserve's benchmark interest rate.

The survey covered 10 quarters starting in January 2006 and ending in June '08. During that time, homebuilding plunged, subprime-mortgage defaults infected banks and the Fed cut rates at the fastest pace in two decades. Since then, banks have failed, President George W. Bush has signed a $700 billion rescue bill and the Standard & Poor's 500 Index was poised for its poorest annual performance since 1937 as frozen credit markets threatened the worst worldwide recession in a quarter century.

Stock markets rallied on Oct. 13 after the U.S. government agreed to buy stakes in banks and the Fed led a push to flood the global financial system with dollars. As of Oct. 22, the S&P 500 had tumbled 39 percent this year.

``It's a world we've never seen before,'' Naroff says.

Far From Chaos

Unlike most of the 126 forecasters Bloomberg rated, Naroff makes his predictions far from the chaos gripping Wall Street. He's the self-employed president of Naroff Economic Advisors, working at home either in the Philadelphia suburb of Holland, Pennsylvania, or at his New Jersey shore vacation house.

``I walk or I go outside,'' he says. ``That's how I do my thinking, by moving or by being active.''

Naroff also uses his home offices in his role as chief economist for TD Bank Financial Group's U.S. arm, TD Bank, which has headquarters in Cherry Hill, New Jersey, and Portland, Maine.

In January, Naroff correctly estimated unemployment would rise to 5.1 percent at the end of the first quarter of 2008, the highest since September 2005. He accurately predicted 0.9 percent GDP growth for the 2008 first quarter, a plunge from 4.8 percent in the first quarter of 2006, as the housing slowdown took a toll.

He forecast 12-month inflation at 3.9 percent through March 2008, which turned out to be slightly less than the actual 4 percent rate.

As credit flows remained clogged in early October, Naroff forecast the economy shrank at a 0.8 percent rate in the third quarter and will contract at a 0.4 percent pace in the fourth. He says growth will rebound to a 1.6 percent rate in the first quarter of 2009.